New Amendments to the Cayman Private Funds Law
widens the scope for Private Funds that will be required to register with CIMA before 7th August 2020 Deadline.
The Private Funds (Amendment) Law passed on 7th July 2020 has amended the Private Funds Law, 2020 (PFL) in several significant ways which widen the scope of the definition of a “private fund” in the PFL and will bring into scope of registration with CIMA certain corporate entities which were previously thought to be excluded.
In the definition of "Private Fund":
has been removed so that, for example, entities engaged mainly in non-fund business (for example, buying and developing agricultural land to mass produce and sell agricultural produce), but with some private fund business (e.g. fundraising for such venture through the issue of LP interests) will not be automatically excluded from registration with CIMA.
Offering and issuing of its investment interests
has been replaced with "offers or issues or has issued investment interests" which broadens the definition so that, among other things, subsequent or continual offering of investment interests is not required in order to fall within the scope of the PFL.
With the aim of spreading investment risks
has been removed. This amendment means that closed-ended funds with only one investment or project will not be automatically excluded from registration with CIMA. Accordingly, many closed-ended funds which took comfort from the CIMA issued FAQs of May 2020 will now need to reassess whether or not they are still excluded from registration after the changes introduced by the Private Funds (Amendment) Law.
For reward based on the assets, profits or gains of the company, unit trust or partnership
has been removed so that a lack of fee payment, or fee payment at a different stage in the fund’s term in a closed-ended fund structure will not, in and of itself, exclude such a fund from the requirement to register with CIMA.
Conflicts of Interest
The Private Funds (Amendment) Law has now made it a requirement that where a person connected or affiliated with the fund (e.g. its general partner) will be undertaking (i) Valuation of Assets, (ii) Safekeeping or custody of Fund assets, or (iii) cash monitoring, potential conflicts of interest must not only be properly identified but also must be “managed” and “monitored” and disclosed to the investors of the private fund. The addition of the words “managed, monitored” appear to indicate that CIMA will expect a private fund to have policies and procedures for dealing with conflicts and perhaps additionally may expect to see the creation of an advisory committee or other mechanism for identifying, monitoring and managing them in accordance with those policies and procedures.
Interestingly, the Private Funds (Amendment) Law (which include deleting the business and re-ward aspects of the definition of a “private fund” as discussed above) nevertheless does not amend the Schedule of “non-fund arrangements” in the PFL at all, despite the list of “non-fund arrangements” in that Schedule still including “arrangements not operated by way of business”.
For further guidance and assistance with registering your Private Fund with CIMA before the 7th August 2020 deadline, please contact your usual Loeb Smith attorney or any of: